The Massachusetts Health Care Reform Law permits the state to assess an annual per-employee fee called the Fair Share Contribution (FSC) against non-contributing employers with 11 or more full-time equivalent employees. The fee can be as much as $295 per employee. To avoid the fee, the law requires an employer to offer a group health insurance plan and to make a “fair and reasonable” premium contribution towards that insurance. Massachusetts proposes to change the regulations defining what constitutes a “fair and reasonable” premium contribution in order to increase the number of employers who are subject to the FSC.
Under existing regulations, an employer satisfies the “fair and reasonable” requirement by passing either the Primary or the Secondary test. An employer satisfies the Primary Test if on an annual basis, 25% of its full-time employees are enrolled in its group health care plan. “Full-time” means 35 hours per week or more. Under the Secondary Test, an employer will satisfy the “fair and reasonable” requirement if it offers to pay for 33% of the premium contribution for full-time employees that were employed at least 90 days. If an employer satisfies either test, then it is not subject to the FSC.
The state had anticipated collecting about $75 million in employer fees in fiscal year 2008. However, many employers met one of the two tests, and, as a result, the state has collected only a fraction of the budgeted amount. Critics have complained that the existing regulations set the bar too low for employers to avoid the FSC.
In order to collect more money in fees from employers, Governor Deval Patrick is proposing to change the regulations defining what is a fair and reasonable premium contribution in several respects. Most importantly, the proposed regulations would require an employer to meet both the Primary and Secondary Tests. Thus, to avoid the fee, an employer must demonstrate that 25% of its full-time employees are enrolled in its group health plan and that it offered to pay at least 33% of the premium contribution. Second, the proposed regulations would require the employer to calculate the Primary Test on a quarterly rather than annual basis. Although the FSC would be assessed yearly, the regulations contemplate that an employer would owe a prorated fee for every quarter that it failed the Primary Test. Finally, the proposed regulations would change the definition of “full-time” to the lower of (1) 35 hours per week or (2) the number of hours per week required for full-time health benefits under the employer’s health insurance plan. For example, if the plan provides that anyone who works at least 20 hours per week is eligible for benefits, then that definition will control. This change could make it more difficult for employers to satisfy the Primary Test. Employees who work fewer hours and earn less per week are more likely to decline health insurance coverage, even if eligible.
Taken together, the proposed regulations are designed to force more employers into paying the FSC. Industry groups are protesting the proposed changes, and the Massachusetts Division of Health Care Finance and Policy will hold a public hearing on September 5, 2008 regarding the proposed regulations. If promulgated, the regulations will take effect on October 1, 2008.